Financial Statement Differentiation

In today's society, businesses and organizations complete various financial statements that will inform management, creditors, and investors of its financial status. Corporations complete financial statements, such as the income statements, balance sheets, retained earnings statement, and statement of cash flows on a monthly or annually basis. Financial statements must indicate true, accurate, and precise information according to the rules and regulations mandated by the United States of America government. Management, creditors, and investors review the financial statements that will provide him or her with precise information to answer his or her questions.

Income Statement

When businesses and organizations want to identify how the company is operating for a certain period of time the business or organization will complete an income statement. According to Kimmel (2009), the income statement identifies a business or organization's revenues and expenses; the expenses are subtracted from the revenues, which determine the company net income or net loss (p. 12). A business or organization revenue is the income the company made through sales or services rendered. The company expenses are the costs to produce and sell a product or service (Kimmel, p. 11, 2009). The income statement is used to determine if a business or organization is successful or unsuccessful. In addition, the income statement would be of most interest to investors, creditors, and management. The income statement would be of most interest to investors, creditors, and management because the income statement provides useful information that investors, creditors, and management can use to forecast the company's future income. Creditors want to make sure the business or organization will be able to repay its loan and have income to operate. In addition, managers utilizes the income statement when making pricing decisions and evaluating the company's profitability and growth.

Balance Sheet

Businesses and organizations develop a balance sheet to identify a business or organization's assets, liabilities, and stockholder's equity. "The balance sheet presents the company's financial position as of a specific date" (Kimmel, 2009, p. 14). When developing a balance sheet the business or organization would list its assets first then its liabilities and stockholders' equity. The assets of a business or organization are resources the company has purchased to conduct business such as, furniture, property, and equipment. A company's liabilities is it obligations to creditors and vendors. The stockholders' equity consists of two components, the company's common stock, which is the new shares of stock the company sold and retained earnings. The retained earnings are the portion of the net income the company retained (Kimmel, p. 10, 2009). The balance sheet would be of most interest to management and creditors. The balance